Oil gushes through $50 level for the first time

Oil shot through $50 a barrel for the first time yesterday as the President of Opec admitted the cartel "cannot do anything" to help and warned of a global recession.

Saudi Arabia tried to cool the market by announcing that it would increase its production from 9.5m barrels a day to 11m, but Purnomo Yusgiantoro, the president of the oil cartel, said increased output may not bring down prices. "Whatever we do, there is no sensitivity in the market," he warned.

Meanwhile, Shell staunchly refused to shut down production in Nigeria, despite threats from militants of an "all-time war" from Friday. Shell has evacuated 235 workers and has temporarily lost about 30,000-40,000 barrels of oil a day from the region. Agip also said it saw no reason to shut down.

US crude touched a high of $50.47 during trading before falling back to $49.85 a barrel, up 21 cents. Brent crude in London rose 52 to $46.45, another record.

Most commentators believe the price of oil will continue to rise over the winter. T Boone Pickens, the Texan magnate who tried to take over Gulf Oil and Philips Petroleum in the 1980s and currently manages energy-based hedge funds worth over $1 billion, said the price was more likely to hit $60 than retreat to $40.

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"You've got plenty of oil, but light sweet is in short supply," he said in a radio interview. "The Chinese want light sweet, we want light sweet. You could go through $50 pretty quick." Nigeria is a key exporter of light sweet crude to the US.

Prices are also expected to rise this week if the US Energy department reveals a drop in oil stocks. US supplies have been stretched thin after Hurricane Ivan cut off 10m barrels from the Gulf of Mexico. Yesterday, two weeks after the hurricane, production in the Gulf was still down 29pc, or 492,000 barrels a day.

The International Air Transport Association said yesterday that the airline industry would make losses of $3 billion-$4billion this year, due partly to the rise in the oil price.

IATA director Giovanni Bisignani said that every dollar rise in the price of oil costs air travel companies a billion dollars.

"Airlines have done a great job of reducing costs with some very difficult circumstances. Unfortunately the high price of fuel is eating up these gains and more," he said. Airline traffic rose 10.8pc last month compared with last year, and cargo traffic has grown 13.6pc.

Several leading economic policy-makers warned that high oil prices could severely hamper the world's economy. France's budget minister Dominique Bussereau and Spain's economy minister Pedro Solbes both said yesterday that the prices could have an impact.

Victor Constancio, a member of the European Central Bank's governing council, said: "If this price is not temporary, forecasts for global economic growth must be revised downwards."

Economic leaders meeting in Washington this week for the annual gatherings of the World Bank and the International Monetary Fund are also expected to debate the problems of a high oil price.

IMF managing director Rodrigo Rato has pointed to this as one of the "growing downside risks" to a 4.6pc growth estimate for the world economy.

China, which has seen its consumption of oil rise by a million barrels a day in the past year, is particularly vulnerable. The country has had to pay $19billion extra this year in higher oil costs, according to Andy Xie at Morgan Stanley. "China's overall oil bill is running at $89 billion, or 5.3pc of GDP, twice as high as the global average," he said.

Commodity analysts at Goldman Sachs revised their baseline estimate for the oil price yesterday. The bank now believes that it will run at over $45 until the end of December next year, and said that speculative positions were only having an impact of $3 a barrel on the oil price.

Economists at the Royal Bank of Scotland said that if the price rose to $80, the modern equivalent of the oil price spike in the 1970s, then the UK economy would slow to 3.2pc growth this year, and 1.2pc growth in 2005.

They said consumer price index inflation would rise sharply to 2.7pc next year.